Today, many people travel by air since it is the safest and fastest mode of transport available on earth, an aspect which has also made it very popular in the transportation of perishable goods. There are daily flights to almost every part of the world. The industry does not only provide transport services to air travelers but also greatly contributes to the global economy. The airline industry experiences huge revenues compared to any other form of transport. The industry does not only experience huge revenues (very few economic activities generate the revenue compared to the one generate by the airline industry) but the industry also contributes greatly in making sure that the other parts of the economy move smoothly, this is because of its impact to the various economic sectors for example the flower industry, tourism and manufacturing (Centre of Asia Pacific Aviation par 2).
During its inception the airline industry witnessed a lot of regulation, but recently, the airline industry has witnessed several milestones such as linearization of the industry though there is government control it is very minimal another great impact is the development of technology which favors the operations conducted by the airline industry (Centre of Asia Pacific Aviation par 4). The development of the information technology has had several impacts in the airline industry such as reduction of travel agencies (Centre of Asia Pacific Aviation par 4). Technology has also lead to the introduction of features such as online booking so travelers don't need to book physically in order to get a ticket instead just go online and obtain your ticket.
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The airline industry is currently made up of over 2000 airlines and the total amount of airplanes is believed to be 23000 and 3700 airports. Recent statistics show that the airline industry conducts around 2.8 million flights around the globe which see to it that two billion passengers were safely delivered to their desired destination. The airline industry has been growing at the rate of 5% per year but the recent global economic recession greatly reduced the rate of growth of the airline industry. This growth varies greatly depending on the geographical and economic conditions of a particular place (Centre of Asia Pacific Aviation par5).
Impacts of Economic Changes on the Airline Industry
The airline industry has been faced with economic challenges which have greatly reduced the number of its operations hence impacting on its revenue (Centre of Asia Pacific Aviation par 6). The most traumatic event that struck the airline industry is the recent global economic recession which reduced the number of persons travelling by air, the economic recession did not only reduce the number of passengers travelling by air but also saw to it that airlines scale down their operations hence reducing the number of flights taking place globally (Centre of Asia Pacific Aviation par 6).
The move to reduce the number flights and other operations was a very economic viable option since the cost of conducting such operations was outweighing the benefits considering the demand level in the market (Centre of Asia Pacific Aviation par7). This means that the demand was too low hence impacting on the level of supplies i.e. the supply was too high compared to the demand, therefore in order to maintain the equilibrium level of the demand and supply chain the airlines had to cut down their operations level. The economic recession also made fuel prices to rise hence increasing the amount of funds used in operations (Stevenson 15).
The airline industry also faced another main setback; the events of September 1999 really affected the income received from the airline industry (Stevenson 19). The terrorist attack on the passenger plane made individuals worry about their safety while using the air as a means of transport (Stevenson 19). Before this event the government intervention in the airline industry was very minimal but after this event, the governments started setting policies to regulate operations in the airline industry e.g. a third party insurance cover that will see to it that those affected n terrorist attacks and other accidents involving passenger planes are compensated accordingly (Stevenson 19).Want an expert to write a paper for you Talk to an operator now
The recently ended global economic recession saw to it that the price of crude oil increase hence forcing the airlines to increase the travel fare in order to cover for the huge costs incurred in operations costs such s the fuel costs. This also reduced the number of passengers travelling by air. This greatly impacted on the demand of services from the airline industry. The demand went down since the price increase in travel prices made customers to shy off and use alternative means of travel such as rail. This greatly reduced the revenue received by the airline industry (Stevenson 25)
Competition in the Airline Industry
The airline industry is very competitive. The presence of many airlines offering services to consumers, there are airlines offering services globally such as the fly emirates, continental airlines and the united airlines (Stevenson 25). There are also those airlines which have specialized in offering services within a given country, for example fly 540. The competition in the airlines industry has seen many changes in the industry such as mergers. The first great merger in the airlines industry saw the formation of Delta airlines which became the largest airlines. However, Delta airlines were overtaken by the coming together of continental airlines and the united airlines to form the united continental holdings which is now the largest worldwide airline (Centre of Asia Pacific Aviation par7). The mergers in the airline industry are very effective since such mergers lead to the formation of large air companies, these leads to enjoyment of economies of scale due to the availability of a huge base of operations capital, competent staff and a large market share. Since such huge airlines enjoy economy scale they are able to offer considerate price packages to consumer hence increasing the number of consumers accessing their services. However, the issue of merging up of two airlines or companies has some negative impacts such as the rising of the antitrust issue and monopoly (Centre of Asia Pacific Aviation par 2). The presence of a market monopoly leads to negative issues such as consumer exploitation. On the other hand, the presence of a monopolistic market greatly assists in aspects such as research and development since the enterprise enjoying monopoly have the personnel, funds and equipment to conduct researches and other studies in the struggle to improve the technology in use (Centre of Asia Pacific Aviation par 3).
Although there have been some airline companies enjoying monopoly in the airline industry, the industry has introduction of new market players hence making the airline business very competitive (Centre of Asia Pacific Aviation par 8). For example, in the Middle East the main airlines were the Qatar airline and the Fly Emirates, but the year 2003 saw the introduction of a new airline whose presence was felt (Centre of Asia Pacific Aviation par 8). Etihad airline which was introduced by the Government of The United Arab Emirates as the national carrier made the Middle East airline industry competitive even though the airline majors on first class flights (Centre of Asia Pacific Aviation par 8). Recently the airline has introduced an 'all economy' plane that carries not only first class passengers but with other passenger classes (Centre of Asia Pacific Aviation par 10).
The airline industry has also witnessed the struggle by many airlines to fly to as many destinations as possible by increasing their assets and entering into agreements with other market players to help in increasing their scale of operations (The Economist par 10). For example the move by Etihad airlines and Flybe to advertise each other's services to various destinations in the world, this move is very important since it greatly reduces the presence of a monopolistic market and also gives consumers a wide range of options to choose from so as to maximize their utility. This kind of marketing greatly increases competition hence developing a market with many service providers and many consumers, in such a market, the prices of services are determined by the forces of demand and supply (The Economist par 10).
Impact of Information Technology in the Airline Industry
The current generation has seen multiple changes and developments in the field of information technology. The change in information technology has also caused changes in other fields of development and research. The airline industry is another sector which has greatly been revolutionized by the technological advancements that have been witnessed in the recent times. The introduction of the internet as a trading arena has also caused some changes in the airline industry in terms of service delivery and product promotion
The airline industries have utilized the availability of the internet as an investment ground. This is greatly characterized by the many advertisements and other information placed on the internet concerning the respective airlines. Airlines have resolved to market themselves through online websites that are believed to be commonly visited by their target markets. The airlines also develop their own websites which give information about the services that they offer and other activities conducted by the airlines. The airline industry also utilizes the current technology by making placements in movies and using celebrities to market their products and services. The availability of the internet as a major technology tool has also seen the introduction of online booking services. These services enable the consumers to book for a flight from anywhere in the world without having to physically visit the airlines offices to acquire the tickets. The use of the internet to advertise products and to offer booking services is a very brilliant since most people this days access the internet, this greatly creates consumer awareness of the products being offered by the airline (The Economist par 10). The using of online booking services attracts many consumers hence increasing the demand for air travel services; this is because it helps the customers to cut down on the costs they incur when it comes to booking expenses (The Economist par 10).
Deregulation in the Airline Industry
This is the process of ensuring that there no barriers affecting the entry into the airline business (Butler 19). This is a move to ensure that there are no restrictions in the airline industry with regards to entry requirements and issues relating to prices (Butler 1998). Deregulation ensures that the prices are determined in the market by the forces of demand and supply (The Economist par 11). The process of deregulation in the United States was pioneered by the introduction of the Air Mail Act which was passed in the year 1926 another Act which supported the deregulation process was the Air Commerce Act which also came into force in the year 1926 (Butler 19).
The deregulation of airlines witnessed a major turning point in the year 1978 when the then president of the United States signed the Airline Deregulation Act hence making it a law. The Act was signed by President Jimmy Carter; the main reason for making the Act law was to eliminate government control over the airline industry (The Economist par 10). The main control aspects of the government that were removed were mainly, fare, market entry requirements and travel routes. The introduction of the Airline Deregulation Act saw to it that the Civil Aviation Board was completely removed from the picture with regard to issues concerning the airline industry in the United States, the removal of the Civil Aviation Board left the customers at the mercy of the forces of demand and supply since prices were no longer controlled (The Economist par 12).
Basing our knowledge in the study of economics, the issue of government control over the airline industry with regard to prices, travel routes and market entry requirements had a negative impact on the airlines operators since it lead to high operation costs. This is because such regulation greatly affects the market forces and leads to issues such as cost push inflation. Prices incurred during such periods (inflation) are not catered for by the revenue received since the caries are not allowed to compute their prices with reference to the current level of costs incurred, such regulations do not also give room for the forces of demand and supply to prevail, such regulations also lead to diseconomies of scale. However such regulations assist in ensuring that the consumer is not exploited by the major market players (The Economist par 13).
The deregulation of the airline industry also gave room for the introduction of new carriers hence competition. Competition is very important in a given market since it is a very effective control mechanism of monopoly and consumer exploitati0on (The Economist par 14). Whenever there is sufficient competition in a given market, the forces of demand and supply prevail (The Economist par 14). Presence of competition also ensures that reasonable prices are set because whoever sets high prices will be short of consumers hence he will be forced to comply and fix the current equilibrium price (The Economist par 14).
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